KUALA LUMPUR: Cahya Mata Sarawak Bhd (CMSB) has proposed to issue RM1bil Sukuk Ijarah programme (2016/2036) and the Sukuk has been assigned an AA3/Stable rating by RAM Rating Services Bhd.

The ratings agency said it had also reaffirmed the construction and cement manufacturer’s AA3/Stable/P1 corporate credit ratings.

“The ratings are supported by CMSB’s strong business profile as the sole cement manufacturer in Sarawak. Backed by strong market position and vertically integrated operations, the group’s cement business has been highly profitable,” it said. 

RAM Ratings said CMSB’s somewhat diversified sources of income are also viewed favourably, albeit mostly being related to the construction sector. 

“The group has been enjoying strong growth in profitability for its construction material and trading as well as construction and road maintenance divisions in recent years, attributed to the booming Sarawak construction scene.

“All in, prospects for CMSB are bright over the medium term, underpinned by the fact that it will remain as one of the main beneficiaries of the development of the Sarawak Corridor of Renewable Energy (SCORE),” it said.

RAM Ratings said the ratings continue to reflect the group’s superior financial profile. CMSB had been able to maintain a net cash position in the past five years despite being actively acquiring new investment assets. 

“While the group is anticipated to chalk up more borrowings under the proposed Sukuk, RAM expects its financial profile to remain healthy. 

“Under our sensitivity analysis, the group is envisaged to be able to sustain funds from operations debt coverage ratio of around 0.30 times and gearing ratio of less than 0.40 times following the drawdown; these levels stack up well against AA3 peers. 

“Moderating the ratings is the group’s geographical concentration risk. Given that its entire business operation is based in Sarawak, CMSB’s performance is heavily dependent on economic conditions in the state,” it said.

RAM Ratings pointed out the group’s performance could soften should Sarawak’s economy experience a slowdown or in the event of setbacks in the development of the SCORE. 

“Moreover, as the Group’s products are targeted at the property and construction industries, it also has to contend with the cyclical nature of these sectors. CMSB’s growing investments in commodity processing ventures in Samalaju are also exposed to volatile commodity prices.

“Elsewhere, being substantially owned by the family of Sarawak’s Yang di-Pertua Negeri, Tun Abdul Taib Mahmud (formerly the Chief Minister of Sarawak), the group is exposed to some degree of political risk. Any change in the State’s political landscape could have an adverse impact on the group. That said, we draw comfort from the group’s already-entrenched market position and its crucial role in Sarawak’s overall economic development. At present, members of Abdul Taib’s family hold a 39%-stake in CMSB,” it added

CMSB, set up in 1974, is a Sarawak-based conglomerate listed on Bursa Malaysia. Starting off purely as a cement manufacturer, its core businesses now include trading in construction materials, construction and road maintenance and to a smaller extent, property development. 

CMSB also produces ferrosilicon and manganese alloys. recently, the CMSB acquired a 50%-stake in Sacofa Sdn Bhd, a telecommunications infrastructure provider.